NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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The Seniority Structure of Sovereign Debt

Matthias Schlegl, Christoph Trebesch, Mark L.J. Wright

NBER Working Paper No. 25793
Issued in May 2019
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, International Trade and Investment, Law and Economics

Sovereign governments owe debt to many foreign creditors and can choose which creditors to favor when making payments. This paper documents the de facto seniority structure of sovereign debt using new data on defaults (missed payments or arrears) and creditor losses in debt restructuring (haircuts). We overturn conventional wisdom by showing that official bilateral (government-to-government) debt is junior, or at least not senior, to private sovereign debt such as bank loans and bonds. Private creditors are typically paid first and lose less than bilateral official creditors. We confirm that multilateral institutions such as the IMF and World Bank are senior creditors.

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Document Object Identifier (DOI): 10.3386/w25793

 
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